At my college Blackboard isn't tied in to the administrative processes (there's another system for that), so hopefully they will consider this. "Free" is a word that they like to hear. I don't know too much about the guts of Blackboard but it doesn't seem to be as customizable as a Google system will be.
I could be misunderstanding your concern, however, since the vanilla Apps for Domains does store the credentials in a Google controlled machine, AFAIK. I cannot speak to whether there are any customizable authentication options available with Apps for Domains.
1 = and thus creates a new namespace for usernames
I'm curious to see how this LMS works out and am recommending teachers check it out immediately.
Instructure's Canvas also used Google APIs and yes, you have to have a Google acct to use certain things like GoogleDocs within their site...